To enhance efficiency and transparency in tax administration, numerous countries have opted to separate tax policy from revenue collection.
Bangladesh first considered this reform during the caretaker government of 2007-08, but the initiative failed to materialise.
Now, the interim government has revived the effort as part of broader revenue system reforms, spurred by pressure from multilateral lenders such as the International Monetary Fund (IMF) and the World Bank.
In this context, the government has recently drafted an ordinance proposing the establishment of two independent divisions - the Revenue Policy Division and the Revenue Management Division.
However, experts have expressed reservations about the effectiveness of this initiative.
They argue that past administrative reforms in Bangladesh, which involved the creation of various agencies, have often failed to yield the desired results.
Without addressing existing issues such as corruption, mismanagement, and the lack of digitalisation, simply dividing the National Board of Revenue (NBR) into two separate bodies may not necessarily lead to an increase in tax collection.
Structural weaknesses in the revenue system remain a major impediment to tax collection growth, analysts observe.
A significant portion of Bangladesh’s economic units remains outside the tax net, while the informal economy continues to expand.
Consequently, the country has one of the lowest tax-to-GDP ratios globally. While individual taxpayers contribute through various channels—such as mobile phone usage, shopping, dining, and entertainment—over 90% of businesses remain beyond the tax framework.
Alarmingly, Bangladesh lags behind even Nepal and Pakistan in tax-to-GDP ratio, which has stagnated at around 7-8%, a figure some experts suspect is distorted by inflated GDP calculations.
While experts acknowledge that separating tax policy from administration has merit, they insist that such a step must be part of a holistic reform strategy.
Furthermore, experts note that the NBR has historically been reluctant to expand direct tax collection.
To improve the tax-to-GDP ratio, it is imperative to shift reliance away from indirect taxes and broaden the scope of direct taxation.
Despite having 1.04 crore Taxpayer Identification Number (TIN) holders in the 2023-24 fiscal year, only 43 lakh filed income tax returns.
This disparity indicates that while the number of registered taxpayers has increased, direct tax revenue has not risen proportionally.
Insufficient oversight, the absence of regular taxpayer surveys by independent agencies, and the sluggish pace of tax administration automation have all contributed to the low tax return submission rate.
Additionally, experts highlight that the Proof of Submission of Return (PSR) system lacks proper enforcement, further weakening compliance.
Overall, Bangladesh's tax collection system has not expanded adequately, leading to a persistent lack of willingness among citizens to comply with tax obligations.
Bangladesh’s tax-to-GDP ratio has been declining for several years. In 2018-19, NBR collected Tk2.6 trillion, representing 10.22% of GDP.
However, this ratio has since fallen. In 2019-20, tax revenue dropped to Tk2.18 trillion, with a tax-to-GDP ratio of just 6.86%.
Since then, the figure has failed to surpass 7.5%. In the 2023-24 fiscal year, the tax-to-GDP ratio stood at 7.32%, with total revenue collection reaching Tk3.61 trillion.
To address these challenges, the interim government formed a Revenue Policy Reform Advisory Committee on 9 October last year, headed by former NBR chairman Dr Mohammad Abdul Mazid.
Other members include former NBR chairmen Dr Nasir Uddin Ahmed, Mohammad Delwar Hossain, Farid Uddin, and Aminur Rahman.
The committee submitted an interim set of recommendations on 22 December, following which the government drafted the ordinance proposing the restructuring of the revenue administration system.
The draft Revenue Policy and Revenue Management (Separation) Ordinance 2025 proposes that the Ministry of Finance will oversee the two newly formed divisions.
Secretaries or senior secretaries from the BCS (Customs and Excise) and BCS (Taxes) cadres, each with at least 20 years of experience, will be appointed to lead these divisions on a rotational basis.
Despite the proposed structural changes, experts warn that the success of this initiative will depend on tackling corruption, improving tax compliance, and implementing effective automation.
Without these essential reforms, the reorganisation may amount to little more than bureaucratic reshuffling rather than a genuine step towards improved revenue collection.
